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This article includes a one-page preview that quickly summarizes the key ideas and provides an overview of how the concepts work in practice along with suggestions for further reading.

Most corporations are not as skilled at selling off assets as they are at buying them, often divesting at the wrong time or in the wrong way. Either is a very expensive mistake. A Bain & Company study has found that over the last 20 years, corporations that took a disciplined approach to divestiture created nearly twice as much value for shareholders as the average firm. In this article, Bain partners Mankins, Harding, and Weddigen set out the four straightforward rules those effective divestors follow. First: Just as they have acquisition teams, smart divestors have full-time divestiture groups, which continually screen their companies' portfolios for likely businesses to sell off and think through the timing and implementation steps needed to maximize value in each particular case. Second: They choose their divestiture candidates objectively. Too many firms rush to sell in economic downturns, when prices are low. Thoughtful divestors will sell only those businesses that do not fit with the corporation's core and are not worth more to themselves than they are to any other company. Third: Successful divestors consider how to structure a deal and to whom they will sell as carefully as they consider what units to sell and when. And they are as meticulous about planning the implementation of a deal as savvy acquirers are about postmerger integration. Fourth: They make a compelling case for how, and how quickly, the deal will benefit the buyer, and they make sure the selling unit's employees will be motivated to stay on and realize that value. Using these four rules, companies as diverse as Textron, Weyerhaeuser, Ford, Groupe Danone, and Roche have become "divestiture ready": consistently able to sell at the right time and in the right way to create the most value for their shareholders.

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Most companies do a thorough job of financial due diligence when they acquire other companies. But all too often, deal makers simply ignore or underestimate the significance of people issues in mergers and acquisitions. The consequences are severe. Most obviously, there's a high degree of talent loss after a deal's announcement. To make matters worse, differences in decision-making styles lead to infighting; integration stalls; and productivity declines. The good news is that human due diligence can help companies avoid these problems. Done early enough, it helps acquirers decide whether to embrace or kill a deal and determine the price they are willing to pay. It also lays the groundwork for smooth integration. When acquirers have done their homework, they can uncover capability gaps, points of friction, and differences in decision making. Even more important, they can make the critical "people" decisions--who stays, who goes, who runs the combined business, what to do with the rank and file--at the time the deal is announced or shortly thereafter. Making such decisions within the first 30 days is critical to the success of a deal. Hostile situations clearly make things more difficult, but companies can and must still do a certain amount of human due diligence to reduce the inevitable fallout from the acquisition process and smooth the integration. This article details the steps involved in conducting human due diligence. The approach is structured around answering five basic questions: Who is the cultural acquirer? What kind of organization do you want? Will the two cultures mesh? Who are the people you most want to retain? And how will rank-and-file employees react to the deal? Unless an acquiring company has answered these questions to its satisfaction, the acquisition it is making will be very likely to end badly.

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In mergers, the unexpected comes in many forms, from the small breakdowns that happen with almost any acquisition to radical shifts in the competitive bedrock on which the deal was built. Problems with the former tend to fall into three areas: organization upheavals, customer service blunders, and operational dysfunction. They demand serious, focused intervention, but they don't threaten to break the deal. Problems with the latter may reflect faulty due diligence or changing markets; they call for more radical transformations. But whether problems are manageable or cataclysmic, successful acquirers have strong early-warning systems in place to identify them, and they respond to even the faintest distress signals without delay. Their approach can provide a valuable model for any company considering--or surviving--a merger.

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Today's corporate deal makers face a conundrum: Though 70% of major acquisitions fail, it's nearly impossible to build a world-class company without doing deals. In Mastering the Merger, David Harding and Sam Rovit argue that a laserlike focus on just four key imperatives--before executives finalize the deal--can dramatically improve the odds of M&A success. Based on more than 30 years of in-the-trenches work on thousands of deals across a range of industries--and supplemented by extensive Bain & Co. research--Harding and Rovit reveal that the best M&A performers channel their efforts into (1) targeting deals that advance the core business; (2) determining which deals to close and when to walk away; (3) identifying where to integrate--and where not to; and (4) developing contingency plans for when deals inevitably stray. Top deal makers also favor a succession of smaller deals over complex "megamergers"--and essentially institutionalize a success formula over time. Helping executives zero in on what matters most in the complex world of M&A, Mastering the Merger offers a blueprint for the decisions and strategies that will beat the odds. David Harding is a director in Bain & Co.'s Boston office and is an expert in corporate strategy and organizational effectiveness. Sam Rovit is a director in the Chicago office and leader of Bain & Co.'s global mergers and acquisitions practice.

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No matter how compelling the business case, acquisitions inevitably run into difficulties. Key people leave, processes break down, information systems get tangled, and customers grouse. Most company leaders are blindsided by these impediments--they've focused so hard on nailing down the terms of their deals and hashing out broad integration plans that they've given short shrift to spotting specific problems. The most successful acquirers, however, don't ignore any of the details. Whether problems are manageable or cataclysmic, these acquirers have strong early-warning systems in place to identify them, and they respond to even the faintest distress signals without delay. Their approach can provide a valuable model for any company considering--or surviving--a merger.

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The headlines are filled with the sorry tales of companies like Vivendi and AOL Time Warner that tried to use mergers and acquisitions to grow big fast or transform fundamentally weak business models. But, drawing on extensive data and experience, the authors conclude that major deals make sense in only two circumstances: when they reinforce a company's existing basis of competition or when they help a company make the shift, as the industry's competitive base changes. In most stable industries, the authors contend, only one basis--superior cost position, brand power, consumer loyalty, real-asset advantage, or government protection--leads to industry leadership, and companies should do only those deals that bolster a strategy to capitalize on that competitive base. That's what Kellogg did when it acquired Keebler. Rather than bow to price pressures from lesser players, Kellogg sought to strengthen its existing basis of competition--its brand--through Keebler's innovative distribution system. A company coping with a changing industry should embark on a series of acquisitions (most likely coupled with divestitures) aimed at moving the firm to the new competitive basis. That's what Comcast did when changes in government regulations fundamentally altered the broadcast industry. In such cases, speed is essential, the investments required are huge, and half measures can be worse than nothing at all. Still, the research shows that successful acquirers are not those that try to swallow a single, large, supposedly transformative deal but those that go to the M&A table often and take small bites. Deals can fuel growth--as long as they're anchored in the fundamental way money is made in your industry. Fail to understand that and no amount of integration planning will keep you and your shareholders from bearing the high cost of your mistakes.

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Ultimately, the success or failure of a merger grows out of the decisions made by executives at critical junctures throughout the transaction. Using the case of Kellogg, this chapter illustrates that the better people are at handling the four imperatives of a business combination, the more successful the merger is likely to be.

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While every integration, or bringing together of two companies in productive ways, is different, a number of guiding principles apply across most integration efforts. These principles revolve around the central question of this chapter: Where do you really need to integrate operations as opposed to letting each entity carry on separately?

learning objective:

To examine the third of four critical deal-making decisions: where do you really need to integrate?

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Determining what you want to buy should be deeply rooted in understanding your current business: selecting your targets is all about reinforcing your core. This chapter focuses on the first of the four key deal-making decisions: the all-important process of picking your targets.

learning objective:

To examine in detail the first of the four critical questions: how do you pick your targets?

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